Stocks breakout to the upside, confirming double bottom

Continuing our recent series of posts on stocks and spread betting stocks, in particular the S&P 500, we eventually got the breakout that we had been looking for. As we had indicated may be the case yesterday, due to both the long term trend and the steady progression higher over the past few sessions from support, the S&P 500 broke out of the range to the upside, with the S&P 500 clearing resistance at 1101.5 and closing at 1109.2 on the September contract.

This recent sideways action went on for 18 sessions before the breakout occurred and the close above the intervening high between to the 2 lows of that range means that the double bottom is confirmed. In addition, the close is also above the high of the shooting star pattern from previous day’s session. The shooting star is a reversal pattern and a close above it means that it is no longer valid. Therefore, things in the short term are looking better than they have been of late and we may get a continuation higher from here.

The question now is how far can this move continue? As we wrote yesterday, one way of getting an idea of the potential move is to take the height of the immediately preceding lateral trading range and add it to the breakout level. Doing this can give us an indication as to how far the breakout may go and where the market may end up. In this instance the range is around 65 points, so we can look for a continuation higher possibly to around 1165. There is some resistance at around 1142 that may come in to play prior to that target. There is also resistance from a falling window around the 1142 to 1151 area.

It remains to be seen as to whether we get sufficient strength in this market for it to generate a buy signal and we will look to the action over the next few sessions and in particular the weekly closing prices before initiating any position. The LS Trader financial spread betting system has specific rules that dictate when and where we enter any position and it takes more than just patterns to enter a trade.

Good trading

Phil Seaton

 

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